Power of Markets

Using Wheelan as a guide, discuss how economic decisions about what to produce, how to produce, and how much to produce are made.

In naked economics, the first chapter discusses free markets in which everyone makes the best decisions for themselves. What makes a free market system different than a communist system is that businesses have more independence to choose how their resources are used, etc. rather than being controlled by the government. Decisions about what to produce and how much to produce are largely based on supply and demand. For example, if skinny jeans are in style, fashion companies will produce more skinny jeans than bell bottoms because they will be more likely to sell the skinny jeans and make a profit. The amount of skinny jeans depends on how much they are likely to sell. If they overproduce they will lose money. They may decide to not even produce any bell bottom jeans. It all depends on what people demand at the moment and how much they demand. Decisions on how to produce are also made by the business itself. Businesses can choose how they want to use their resources to produce in a cost efficient way. The idea of self-interest is large in a market economy, which drives businesses to do what is best for them. This allows for more efficiency and competition to arise. As a result, companies will compete by producing better versions of similar products.